Sasol avoids making corporate history

Sasol avoids making corporate history

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Sasol’s non-executive directors came within 1.77 percentage points of making corporate history at Friday’s AGM, when 23.23% of shareholders voted against paying non-executive directors for financial 2021.

Despite extensive campaigning by the board in the run-up to the meeting, including an undertaking to take a 20% cut in fees, the special resolution needed for the authority to pay the non-executive directors only just managed to secure the necessary 75%.

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The resolution on non-executive directors’ fees, which traditionally secures around 99% of shareholder backing, got just 76.77%.

In addition, 56% of shareholders voted against the remuneration implementation report, which deals with Sasol’s executive pay.

The results of the voting, announced at the end of a four-hour AGM, prompted the meeting’s only in-tune response from the board, with chair Sipho Nkosi saying: “We take the message you have conveyed to us by how you have voted on the implementation report on the remuneration policy and some of our other resolutions.” He added: “We get the message”.

It was the first indication anyone on the board was getting any message from shareholders attending the AGM.

Indeed, for most of the previous hours it was difficult to decide whether to admire the Sasol directors for their dogged determination to appear unfazed in the face of an unrelenting challenge from shareholders, or be deeply worried that perhaps they don’t quite understand the extent of the existential threat facing them.

Things are good …

For four hours (five if you include the general meeting held just before the AGM) shareholders questioned the board about Sasol’s environmental destruction, about generous director fees and about its relationship with US-based engineering group, Fluor. And, judging by the directors’ response, everything seems to be in order.

It’s all tickety-boo at South Africa’s national oil champion:

  • Sasol has won awards for its reporting and is compliant with all South African environmental regulations.
  • Directors’ fees are actually on the low-end compared with peer groups.
  • And as for Fluor, well, lawyers and consultants looked into that and found no wrongdoing.

So there you go.

Indeed, at one stage early on in the proceedings finance director Paul Victor gave such an upbeat commentary on Sasol’s operations, a ‘buy’ recommendation seemed in order, until he added, almost as an aside: “… on the downside we did have to book R112 billion of impairments.”

Lake Charles sale

Victor’s upbeat perspective even extended to the sale of a 50% stake in the US Lake Charles base chemicals business for $2 billion. He managed to present the sale, which necessitated R72 billion of the write-off, as a stonking good deal for the group.

It was a view that seemed to be endorsed by CEO Fleetwood Grobler, who said the group’s remaining 50% stake in the joint venture with global chemicals company LyondellBasell Industries meant it would be able to participate “in the upside” if Sasol decided to sell its 50% at some later stage.

Read: Sasol to sell Lake Charles stake for R33.38bn

For five hours (remember the general meeting) the directors responded to questions as though shareholders didn’t quite understand the workings of a remarkably large and complex global chemicals and energy group. Implicit in much of their response was the belief that Sasol was in excellent hands and shareholders – indeed all stakeholders – had nothing to worry about.

Things have changed

Up to about five or so years ago the implicit attitude that the majority of individuals questioning the board were part of some fringe group that could be patronised rather than dealt with seriously worked for the Sasol directors. But somewhere along the line, and apparently unnoticed by the Sasol board, things changed subtly but dramatically. Sasol directors are now looking like part of a fringe group and their interlocutors the mainstream.

For a variety of reasons, including perhaps the receipt of awards and the continued acquiescence by government to Sasol’s calls for regulatory leeway, the Sasol directors appear not to realise they are now on the fringe.

Mike Martin of proxy advisor Active Shareholder told Moneyweb after the AGM that it was evident Sasol’s approach to the environment continues to be that stated in its 2018 integrated annual report: “Sasol relies on obtaining postponements together with other mechanisms such as air quality offsets to address our compliance challenges.”

One environmentalist told Moneyweb that Grobler’s claims to be compliant are disputed by the group’s own reports, which admit to contraventions.

During the AGM Grobler indicated that the board would continue to rely on its importance to the SA economy and SA’s status as a ‘developing’ country to shelter it from any tightening in the regulations.

With its primary cash-pumping operation in Secunda tagged as the world’s single largest source of greenhouse gas emissions it’s unlikely that global players will continue to indulge its ‘developing’ country claims. Equally, it’s likely that the biggest potential source of pressure will cease to be the accommodating SA government.

Financiers across the globe are now more aligned with the environmentalists than they are with the Sasol board.

Any doubts about that will have been laid to rest by news that in the wake of Joe Biden’s election victory in the US, the Federal Reserve has asked to join a group of central banks committed to using the financial system to mitigate climate risk.

Read:
Sasol rejects demand for shareholder resolutions on climate
Climate risk continues to weigh on Sasol – Old Mutual

Hopes that a successful Lake Charles Chemicals Project (LCCP) would have provided Sasol with financial shelter have been cruelly dashed and the once cash-flush group is now having to deal with severe balance sheet constraints just as environmental pressure looks set to ramp up.

Listen: Grobler tells Nompu Siziba that Sasol’s committed to new emissions-reduction strategy

The matter of Fluor and Constable

As for the relationship between Sasol and Fluor, which was the lead consultant on the LCCP, Grobler attempted to dismiss shareholder concerns by stating: “We’ve settled all open matters relating to Fluor; Fluor did all it was required to do in terms of our contract. We believe we have finished with that matter.”

On former Sasol CEO David Constable’s role, Sasol executive director Vuyo Kahla told shareholders that a report, undertaken by a team of lawyers and consultants, had found no wrongdoing by Constable and so no action would be taken against him. Constable, a long-time Flour executive, joined Sasol as CEO in 2012 and led the LCCP investment.

In 2016 he left Sasol to return to Fluor, where he was recently appointed CEO.

Shareholders were not persuaded. Some are calling for details of the fees paid to Fluor each year between 2010 and 2020 as well as the release of the full report by the lawyers and consultants.

About that 20% fee cut …

On the issue of non-executive directors’ fees, which Active Shareholder noted have increased over 300% over the past 10 years, Martin said the statement repeated by remuneration committee chair Mpho Nkeli – that the non-executive directors were taking a 20% fee cut – was a little misleading.

Only the board fees are being cut; committee fees are not being cut.

In addition, the introduction of generous travel allowances is likely to ensure non-executive directors are better off in 2021.

As for US-based non-executives being on the low side of their peers, it’s difficult to determine, given Sasol’s situation, who its appropriate peers are.

Martin said Sasol’s refusal to present a resolution on non-executive directors’ fees every year creates a potential crisis for the group as the Companies Act requires these fees to have been approved within the last two years.

While Sasol’s approach is within the law, it is not best practice.

“It is most unfortunate that Sasol, despite its fine words, only does the minimum required in terms of the law. This is the case with non-executive directors’ fees, it was the case with Sasol’s refusal to put the appointment of auditors to the vote [forcing the JSE to make it mandatory] and is even more disturbing in its approach to the environment.”

Read: Sasol shareholders struggle to keep up with its news



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